“The business of business is to increase its
profits”. That is what American economist Milton Friedman claimed
after the Second World War with setting up a capitalistic Western
society. The role what companies have in society is to make profit,
nothing more than that. Governments should give the industry
restrictions what the boundaries are of that capitalistic
playing-field. In democratic societies, like almost
every Western society is the
people vote for the government representatives. In the end the
society as a whole set out the rules for the companies since
societies consists out of people. There also lies the social
responsibility.
But how can Friedman's idea of open-market
economy still contribute to sustainable
management of social ecological systems (SESs)? It sounds
contradictory but I think it is possible if you think about it a
little longer than usual. Even when you think that management of
social ecological system is not a social responsibility of
businesses. If we look at Ostroms idea of sustaining common pool
resources it is possible that governmental interference is not
necessary in all circumstances. When all
key players have the same values, thoughts
about sustainable usage and the same
interest, it is possible to come to a mutual agreement between the
them. In the long term it will be beneficiary for all
the key players to set up certain rules to
avoid a tragedy of the commons like phenomena.
In this case no external pressure is
necessary to have sustainable management system on SESs.
This mechanism could
also be applied in a capitalistic where the business of business is
to increase it profits. When all the companies of a certain industry,
in the case of the previous blog the oil industry, uses to same
system to extract a common pool resources, each company has its
interest to make certain agreements with each other to control the
usage of that resources. Because companies wants to survive in the
future, they also pursuing long term profits. If each company will
extract as much oil or gas form the same well as they can, the
source will deplete rapidly. Also economic mechanism of demand and
supply will be disadvantageous for the industry as a whole. Because
much oil and gas is extracted, the supply will increase. If the
demand will stay the same (ceteris paribus) the price of oil and gas
will drop. The companies will get a lower price for their good and
have therefor a lower revenue on their investments.
For this reason is necessary to for the survival
of the company the have formal or informal rules about the volumes
what they allowed to extract. This is why Friedman's argument about
businesses might be constructive for the sustainable management
procedures of SESs.
Good reasoning, very logical. I like your deduction of that the more exploitation the more uneven between supply and demand, leading to lower price, which I didn't think of before. Now I'm even kinda doubt myself if I misread Friedman's proposition. I once thought that there is few thing in common between sustainability and maximizing profit, people hardly can get both at the same time, they need find a tradeoff. But now I start thinking that in some certain situation, people can find an optimum that can increase benefits as well as maintain sustainable development, just like the example you gave.
BeantwoordenVerwijderenhi Jason,
BeantwoordenVerwijderenI think your view is unique. Your blog make me clear headed. What I struggled about before is the priority of making profits and sustanability. I used to consider that companies should increase profits first so that they would have abilities to make a contribution to sustainability. I never noticed that both of them could be achieved at the same time. thanks for your post.
In your post, the profits are long term profits. but what about the short one? Actually, improvident companies exist indeed. These companies could roil the market. It's not that easy to keep a balanced between supply and demand.
thaks again for your post. I really like it.
best
cenyang